Has Irish Unemployment hit its cycle low?

During the Celtic Tiger years the Irish unemployment rate was consistently below 5% and most forecasters envisage a return to that position in 2019. The monthly data had put the January figure at 5.3% and although the pace of decline had slowed it seemed reasonable to assume that the strength of job creation would be sufficient to again push the unemployment rate below 5%, before hitting full employment.

That view is now open to question, following the release of the latest Labour Force Survey, covering the final quarter of 2018. Figures for employment, the labour force and the numbers unemployed are derived from that survey, based on a sample of households, and it is often the case that the published monthly unemployment estimates are then revised. That is again the case; the q4 average unemployment rate is now put at 5.7% from the previous 5.4%, with the January figure also revised up to 5.7%.

In fact it now transpires that the unemployment rate is unchanged at 5.7% for the past six months, with the actual numbers unemployed some 10,000 higher in January than previously thought. Indeed, seasonally adjusted unemployment, now at 137.000, has been ticking up for the past five months, so the prospect of a sub-5% unemployment rate suddenly looks optimistic rather than realistic.

Why is the unemployment rate becalmed? A decline requires employment growth to outpace that of the labour force which has been the case since early 2012. For example, the annual change in employment in q4 was 50,000 or 2.3%, against a 35,000 (1.5%) increase in the labour force, resulting in a fall in the unadjusted unemployment rate to 5.4% from 6.1% a year earlier.

The pace of employment growth slowed in the second half of last year, however; the seasonally adjusted increase was only 8,300 in the final quarter, following a 9,500 increase in q3. Labour force growth over that period was 20,000 , so giving rise to the modest tick up in the numbers unemployed and an unchanged unemployment rate.

Where to from here? A key driver of any change in the labour force is the participation rate ( the proportion of those over-15 in the workforce).The Irish participation rate ticked up in response to brighter employment prospects but has been broadly unchanged now for some time, at around 62%. If that continues the labour force will grow at the same pace as the over-15 population, currently at 1.5%, implying an annual rise of around 35,000. Unfortunately, employment growth, having slowed in the second half of 2018, is now down to that 1.5% pace.

Brexit related uncertainty may be a factor on the employment side but it could well be that the decline in Irish unemployment is already at or near its cyclical low.